3.2 Dwelling Coverages A-E and Other Coverages

The Five Dwelling Coverages

The Dwelling policy organizes property coverage into lettered parts. The exam expects you to know what each covers, how the limits relate, and the coinsurance math behind loss settlement.

A trap: Coverage D (Fair Rental Value) applies when the property is rented to others; Coverage E (Additional Living Expense) applies to an owner-occupant. Some DP forms include both; DP-1 typically provides only Fair Rental Value.

Coverage B and C Internal Limits

Coverage B (Other Structures) is automatically provided at 10% of Coverage A as an additional amount of insurance (it does not reduce Coverage A). Coverage C (Personal Property) is offered at a base relationship—on the DP-3 it is commonly 10% of Coverage A, but the insured can increase it. Coverages D and E combined are typically capped at 20% of Coverage A on the DP-2/DP-3 (10% on DP-1).

Worked example: A DP-3 with Coverage A = $300,000 automatically provides:

• Coverage B (other structures): 10% = $30,000
• Coverage C (personal property): 10% = $30,000
• Coverages D + E: 20% = $60,000 combined

Coinsurance and Loss Settlement Math

Dwelling forms requiring replacement cost (DP-2/DP-3) impose an 80% insurance-to-value (coinsurance) condition on Coverage A. To collect replacement cost in full, the insured must carry at least 80% of the dwelling's replacement cost at the time of loss. If underinsured, the recovery is reduced by the coinsurance formula:

Recovery = (Carried ÷ Required) × Loss − Deductible

Worked example: Replacement cost = $400,000. Required (80%) = $320,000. The insured carries only $240,000. A partial loss of $100,000 occurs with a $1,000 deductible.

Recovery = ($240,000 ÷ $320,000) × $100,000 − $1,000 = 0.75 × $100,000 − $1,000 = $74,000. The insured eats the $25,000 coinsurance penalty plus the deductible.

Other Coverages (Additional Coverages)

The Dwelling forms include Additional Coverages that grant extra amounts or extend the policy:

• Other Structures (10% of A, on the broad/special forms as additional insurance)
• Debris Removal (within the limit; an extra 5% available if the limit is exhausted)
• Reasonable Repairs to protect property from further damage
• Property Removed — covered against direct loss for up to 5 days while removed to protect from a covered peril
• Fire Department Service Charge — up to $500, no deductible applies
• Collapse (broad/special forms)
• Glass or Safety Glazing breakage

Note that ACV is the default valuation for personal property even on the DP-3; only the building (A/B) gets replacement cost when the coinsurance condition is met.

How the Coinsurance Condition Plays Out

The 80% insurance-to-value condition is tested two ways. The first is the prorated partial-loss penalty shown above. The second is the contrast with a total loss: when a dwelling insured at less than 80% is a total loss, the policy simply pays the Coverage A limit (the lesser of the limit, the replacement cost, or the loss). The coinsurance formula only bites on partial losses.

Work through a contrast. Replacement cost is $400,000, the owner carries $240,000 (60%), and the home is a total loss. The insurer pays the $240,000 limit (less deductible). The coinsurance ratio is never applied to a total loss. But if that same owner has a $100,000 partial loss, the prorated formula applies and recovery is only $74,000 after a $1,000 deductible.

This is why agents push insureds to carry at least 80% to value: it both satisfies the condition for full replacement cost on partial losses and aligns the limit with a realistic total-loss exposure. A frequent trap asks you to apply the coinsurance penalty to a total loss — it never applies there.

Replacement Cost Versus Actual Cash Value

The valuation question underlies most loss-settlement items. Actual Cash Value (ACV) equals replacement cost minus depreciation; it is the default for DP-1 dwellings and for personal property on all DP forms. Replacement Cost (RCV) pays to repair or rebuild with materials of like kind and quality without a deduction for depreciation, and it applies to the dwelling and other structures on DP-2 and DP-3 when the 80% condition is satisfied.

Work an ACV example. A roof costs $20,000 to replace, has a 20-year expected life, and is 10 years old. Straight-line depreciation is 50%, so ACV equals $20,000 × (1 − 0.50) = $10,000, less any deductible. Under an RCV settlement on a DP-3 meeting coinsurance, the insurer would pay the full $20,000 (less deductible), often holding back the depreciation until repairs are actually completed.

This recoverable-depreciation holdback is a frequent exam nuance: even on a replacement-cost policy, the insurer may initially pay ACV and release the remaining depreciation once the insured submits proof the work was done. Personal property on the DP-3 stays ACV unless a personal-property replacement-cost endorsement is added.